Back at 1-800 BIRTHDAY, Jersey hung on. By the latter part of
1998, he didn't have much to work with-but then, he had lots to
lose, so somehow Jersey kept the business afloat. Then, near the
end of the year, he was introduced to executives of The Fingerhut
Companies, one of the largest database marketers of gifts and
housewares in the United States. "Finally, somebody got
it," says Jersey. In 1999, Fingerhut took a 20 percent stake
in 1-800 BIRTHDAY, a move that was instrumental in Jersey righting
the company—and helping take the company to the Internet in
the form of iBIRTHDAY.com. Today, Jersey feels there were three
reasons he was successful in raising money from Fingerhut.
"First," he says, "1-800 BIRTHDAY is a great
idea." No surprise there; what else is the founder of the
business going to say? "Second," notes Jersey, "it
had a management team that the investors could believe in."
Ditto. And finally, he says, "I believe one of the reasons
Fingerhut invested was because [1-800 BIRTHDAY] was led by an
incredibly motivated person with a lot at stake, who needed to
succeed in order to avoid making a serious dent in his career, ego,
home life and pocketbook."
It's important to keep in mind that taking risks does not
mean committing senseless acts in the name of ambition. Jersey, who
might be considered perhaps a cautious risk-taker, went out on a
limb in measured doses. Specifically, during 1998, when the company
was running out of money and venture capitalists weren't
showing even a whiff of interest, Jersey himself didn't go in
any deeper either. "Sure, I could have taken out a home-equity
loan, but it would have been crazy because I couldn't have
gotten the business to the finish line with the proceeds from the
loan. So why risk everything if you can't succeed?"
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Jersey's initial investors were thinking the same thing, and
Jersey empathizes: "I'd only be willing to take risks if
others were taking risks alongside me."
When it comes to raising money, risk-aversion/risk-assumption
behavior can turn into a Mexican standoff—everybody waiting
for someone else to make the first move. But ultimately, because
the investors can wait forever or look at other deals, it's the
entrepreneurs who'll have to move first, and get whatever skin
they can into the game.
Next Step
Add up your personal assets minus liabilities. Decide which of
these you are willing to put at risk, and determine how far these
funds might take your business. Estimate the total cash needed to
fund the business. The difference is how much capital must be
raised. The formula shows how much personal risk must be
assumed.
David R. Evanson's newest book about raising capital is
called Where to Go When the Bank Says No: Alternatives for
Financing Your Business (Bloomberg Press). Call (800) 233-4830
for ordering information. Art Beroff, a principal of Beroff
Associates in Howard Beach, New York, helps companies raise capital
and go public, and is a member of the National Advisory Committee
for the SBA.
Originally published in the July 2000 issue of Entrepreneur Magazine
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